Did U.S. Tax Policies Increase Economic Inequality?

The eight Republican presidential candidates sitting at the table listen as a video of former President Ronald Reagan is played during a debate at Dartmouth College in Hanover, N.H., on Oct. 11.

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Originally published on November 16, 2011 8:54 pm

The Occupy Wall Street movement continues to protest policies that have made the top 1 percent of income earners richer, while about 14 million Americans are out of work.

Meanwhile, the Congressional supercommittee only has one week left to come up with a plan that will cut more than $1 trillion from the deficit. Republicans are opposed to raising revenues by raising taxes, even on the wealthiest Americans, who have seen their taxes dramatically cut over the past 14 years.

"Almost without exception, every proposal put forth by GOP lawmakers and presidential candidates is intended to preserve or expand tax privileges for the wealthiest Americans," writesRolling Stone political correspondent Tim Dickinson. "Most of their plans, which are presented as commonsense measures that will aid all Americans, would actually result in higher taxes for middle-class taxpayers and the poor."

On Wednesday's Fresh Air, Dickinson explains how the tax policies pursued by the Republican Party have changed in the past 14 years — and says those changes have led to greater economic inequality in our country.

He explains that the top 400 taxpayers in the United States have seen their incomes increase threefold since 1997. In that same period, their tax rate has fallen by 40 percent.

"Today, a billionaire in the top 400 pays an effective tax rate of about 17 percent," he says. "That's about 5 percentage points less than your average worker."

The income of the wealthiest Americans has also increased. Dickinson writes that "since Republicans began their tax-cut binge in 1997, they have succeeded in making the rich much richer. While the average income for the bottom 90 percent of taxpayers has remained basically flat over the past 15 years, those in the top 0.01 percent have seen their incomes more than double, to $36 million a year."

Dickinson tells Terry Gross that the revenue going to the wealthiest Americans is increasing.

"This isn't just about the broadest sweep of American society — this 90 percent — if it's getting ahead, it's getting ahead just at the margins," he says. "The people at the very top of the income period are taking off like a rocket — $10,000 an hour raise for the people in the top .01 percent."

Before President George H.W. Bush

Tax cuts, says Dickinson, weren't always the center of Republican policy. From the end of World War II through the Reagan administration, he says, Democrats and Republicans fought over social spending but largely stayed away from taxes.

"Traditionally, Republicans cared deeply about fiscal balance," he says. "So you fought over balance — and taxes were an otherwise uninteresting mechanism to pay the bills. And tax policy wasn't meant to prod and stimulate the economy because prosperity came from the private sector. So the GOP focus on tax policy was not to give the economy a boost, but to find a nondestructive way to raise the revenue that [the government] decided it needed."

The biggest tax cut during that era, says Dickinson, was made by Democratic President John F. Kennedy. Republicans largely opposed it.

"[They] were concerned that this was going to create deficits that were unwieldy," Dickinson explains. "This was consistent with the ideas that Republicans held that their duty in the system was to keep the nation's books in balance."

In the late 1970s, inflation increased wages. Many members of the middle class were pushed into higher tax brackets. President Reagan lowered the tax rate for the wealthiest Americans to just 28 percent in 1986 — but this was largely offset by increasing the amount of money taxed on investments. (This is called a capital gains tax.)

"[In the '80s and early '90s,] people were paying the same amount of tax on income that they got from wages as they got from income that they got from investments," he says. "But starting in 1997, Republicans led by Newt Gingrich dropped that [capital gains rate] to 20 percent. And in 2003, led by Dick Cheney, the Republicans dropped the capital gains rate tax down to 15 percent. And this is why you have this grotesque situation where the richest taxpayers in America are paying a lower effective tax rate than the average wage earner."

What this means is that a person who makes money on investments through the stock market or a hedge fund pays a much lower tax rate on the money earned through those investments than they would pay on a salary.

"The richest 400 taxpayers earn more than two-thirds of their income in capital gains, so that helps explain why their effective tax rate is so low, because the lion's share of their earning is taxed at this ... low rate," says Dickinson.

"That would have the effect of kicking something like 23,000 millionaires off the tax rolls entirely," says Dickinson. "They're people who are just investors. They just make money from money. And under the tax policies proposed by many of the GOP candidates, they would pay nothing in federal income taxes. ... You end up with a situation that is very dangerous to the fiscal order. The Republican philosophy through Reagan was about preserving the fiscal order — about making sure the federal government had enough money to pay its bills."

Though Reagan cut taxes for the wealthy, says Dickinson, he also raised revenue by closing tax loopholes. He also undid a third of the original tax cuts initially implemented by his administration.

"While Reagan was dedicated to cutting taxes for the rich — that is true — he was also mindful of not leaving the country with unsustainable debt," says Dickinson. "Although he did rake up enormous deficits, he was making adjustments during his two terms to raise taxes on things like gasoline. ... Throughout Reagan and the George H.W. Bush presidency, there was a commitment to balance ... and that required raising revenues. There wasn't this allergy to revenue that the current GOP displays."

Interview Highlights

On the neoconservative "starve the beast" strategy that was designed to create a fiscal problem by cutting taxes

"[They thought] if it bankrupts the country, that's OK because it's going to lead to greater spending cuts later on. So if you don't like the nature of what government does — you don't like that it funds a social safety net, you don't like Medicare, you don't like Social Security — it's actually a good strategy to leave the government in a perilous fiscal situation, because energies will be directed into cutting spending and paring back these programs."

On Grover Norquist's Americans for Tax Reform

"In Grover's hand's, the anti-tax pledge has taken on a life of its own. He has taken this pledge — I believe it's now been signed by 98 percent of Republicans in the House — to the state Legislatures. I think there's something like 1,300 Republican state legislators who have signed the pledge. And you have politicians who are coming up through the farm systems in the states before they reach Washington — a very good example of that is Eric Cantor, who's, as a member of the Virginia House of Delegates, signed this pledge. He, of course, today is the House Majority Leader."

On the emphasis on tax cuts during the Bush administration vs. the Obama administration

"During the Bush administration, there was an argument ...[from] Dick Cheney that 'deficits don't matter,' that you can run up these tax cuts on essentially the national credit card, that you can pay for these tax cuts to the wealthiest by borrowing money from China if you need to. But today there's this argument with Obama as president that deficits do matter — in fact, they're the most important thing of all. But there's this strange caveat to this. You can still push through new tax cuts for the wealthy even if those are paid for with deficit spending. It's a very puzzling line of argument that doesn't get challenged very often. But you look at the lame duck deal in December of last year that extended the Bush tax cuts for the wealthiest — and this was a deficit finance package that had other components to it — but the net effect was to raise the national debt by a greater amount than the stimulus package that the Republicans fought so bitterly against as wasteful deficit spending."

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

TERRY GROSS, HOST:

This is FRESH AIR. I'm Terry Gross.

The congressional supercommittee only has one week left to come up with a plan that will cut over $1 trillion from the deficit. They're having trouble reaching a deal; Democrats resist deep cuts to entitlement programs and Republicans oppose raising revenues by raising taxes, even on the wealthiest Americans who have seen their taxes dramatically cut in the past 14 years.

Meanwhile on the streets, the Occupy Wall Street movement continues to protest policies that have made the 1 percent richer, while about 14 million Americans are out of work.

My guest, Tim Dickinson, has written an article about how tax policy over the past 14 years has increased economic inequality. He also writes about the evolution of Republican opposition to raising taxes. Tim Dickinson's article is in the current edition of Rolling Stone, where he's a political correspondent.

Tim Dickinson, welcome to FRESH AIR. I hate to start an interview with statistics, but in this case I think I will. I'd like you to cite some statistics that you think are most revealing about the impact that tax cuts have had on Americans in different economic brackets.

TIM DICKINSON: Well, I think you can see this most clearly in the top 400 taxpayers - these are the taxpayers who have the greatest incomes according to IRS data. And since 1997, which is where I begin my piece, more or less, their incomes have more than tripled so that the average taxpayer in the top 400 earns $345 million. But their tax, their effective tax rate has fallen by 40 percent. And so, today, a billionaire in the top 400 pays an effective tax rate of about 17 percent. And that's about 5 percentage points less than your average worker, single worker, a bus driver, somebody making $26,000 a year.

GROSS: You wrote, the average income of the bottom 90 percent of taxpayers has remained basically flat over the past 15 years. And those in the top 0.01 percent have seen their incomes rise more than 36 million a year. And if you translate that into wages, most Americans have received a raise of $1.50 an hour since the GOP began cutting taxes during the Gingrich era, whereas the most elite saw their pay soar by $10,000 an hour.

DICKINSON: An hour. I mean, this is the thing to understand is that the sort of broadest sweep of American society, this 90 percent, if it's getting ahead, it's getting ahead just at the margins. And then the people at the very top of the income pyramid are taking off like a rocket. I mean, a $10,000-an-hour raise for people in the top 100th of 1 percent.

GROSS: So, you write in your article in Rolling Stone that tax cuts weren't always the center of Republican policy. That for example, from the end of World War II to the eve of the Reagan administration, the parties fought over social spending, with Democrats pushing for more spending, Republicans for less. But when it came time to pay the bills, they didn't fight about taxes.

DICKINSON: Right. So, traditionally, Republicans cared deeply about fiscal balance. And so, you fought overspending and then taxes were sort of an otherwise uninteresting mechanism to pay the bills and tax policy wasn't meant to prod and stimulate the economy because, after all, prosperity came from the private sector. And so, the GOP focus on tax policy was not to give the economy a boost, but to just find a non-destructive way to raise the revenue that you've decided you need or can't avoid.

GROSS: And you say that the biggest tax cut in that era was secured by JFK and the majority of Republicans in the House opposed the cut. That's such a reversal from what we're used to now.

DICKINSON: Opposed the cut. Right. So, John F. Kennedy had an across-the-board tax cut that brought the top rate from, I believe, above 90 percent to 70 percent. So, the richest Americans were paying a marginal tax rate of 70 percent on the top dollars of their income. And Republicans were concerned that this was going to create too - deficits that were unwieldy. And so, they opposed this. And this was sort of consistent with this idea that Republicans held that their duty in the system was to keep the nation's books in balance and make sure that there wasn't too much deficit spending.

GROSS: Have taxes become less progressive in the last few decades? And by progressive I mean the idea that the more money you make, the higher level your tax.

DICKINSON: The most important place where that's true is with investment income. So, in the tax reform of 1986, Ronald Reagan brought the top marginal tax rate down to 28 percent, which is far below where it is today. But he also brought the capital gains rate up by 40 percent to match it. And so you had this unity of tax policies, that people were paying the same amount of tax on income that they got from wages as they were paying on income that they got from money, from investments.

And starting in 1997, Republicans, led by Newt Gingrich, dropped that to 20 percent. And then in 2003, led by Dick Cheney, the Republicans dropped the capital gains tax rate down to 15 percent. And this is why you have this sort of grotesque situation where the richest taxpayers in America are paying a lower effective tax rate than the average wage earner. And so, the notion of progressivity in the tax code totally breaks down at the pinnacle of earners.

GROSS: So, just to stay on the subject of capital gains for a second. Capital gains, that's the money that you make on investments as opposed to money that you get in your paycheck.

DICKINSON: That's right. So, it could be on real estate, it could be on stocks, it could be on bonds. But money made from money.

GROSS: And that's taxed at a lower level than a salary is taxed.

DICKINSON: Right. So, a CEO would pay 35 percent on most of his wage income. But on capital gains he's now paying - he or she is now paying 15 percent. So, it's a 20-point differential there.

GROSS: So, if you're basically making your money investing in the stock market, you pay a much lower level of taxes or, you know, in a hedge fund or whatever, you pay a much lower level of taxes than if you're a wage earner or even if you're a CEO with a big salary.

DICKINSON: That's exactly right. And sort of compounding it, you don't even owe taxes on those gains until you realize them. So, you could have them socked away for years and they're appreciating and then you only pay the 15 percent when it is that you cash out.

GROSS: What is the logic behind taxing capital gains at a lower level than taxing salaried income?

DICKINSON: With high inflation in the 1970s, people who held investments for the long term would see the dollar value of their investments rise even though the core value of the investments was largely unchanged. And so, they were getting taxed on sort of phantom capital gains caused by inflation. But once Paul Volcker, the Fed chair, tamed inflation in the early '80s, there was really no rationale for having these differentiated rates. And Reagan implemented that in his tax reform of 1986 that put them on a par.

GROSS: So, Reagan changed it so that capital gains and salaried income were the same again?

DICKINSON: Taxed the same rate. And so - but since 1997, we've seen a long consistent march of that tax rate downward. So, the richest 400 taxpayers earn more than two-thirds of their income in capital gains. And so that helps explain why their effective tax rate is so low, because the lion's share of what they're earning is taxed at this sort of grotesquely low rate.

GROSS: And isn't part of the rationale for that to spur more investment?

DICKINSON: There is a rationale that says if you lower capital gains rate, you'll free up capital to move around. But as we've seen both after this was done in 1997 and again after it was done in 2003, the most predictable outcome from this is a bubble and so that you reward speculation because you can have debt-financed capital gains and they're taxed at a very low rate, and so we saw that play out in the dot-com bubble and we saw that play out disastrously in the housing bubble.

GROSS: If you're just joining us, my guest is Tim Dickinson. He's national political correspondent for Rolling Stone and his article in the current edition is about Republican tax policy and its impact on Americans. Let's take a short break here and then we'll talk some more. This is FRESH AIR.

(SOUNDBITE OF MUSIC)

GROSS: If you're just joining us, my guest is Tim Dickinson. And he's a political correspondent for Rolling Stone and his article in the current edition is about Republican tax policy and their policy of cutting taxes and the impact that that has had.

Your article opens - and I'm going to paraphrase and then read some of it. It opens by describing the nation recovering from a crushing recession that sent unemployment hovering around nine percent for two straight years. The president, mindful of soaring deficits, is pushing bold action to shore up the nation's balance sheets and the president says we're going to close the unproductive tax loopholes that allow some of the truly wealthy to avoid paying their fair share. Such tax loopholes sometimes made it possible for millionaires to pay nothing while a bus driver was paying 10 percent of his salary and that's crazy. Do you think the millionaire ought to pay more taxes than the bus driver or less?

So somebody listening might assume that you're talking about President Obama there saying that, but it was actually President Reagan in 1985 speaking to a crowd in Georgia. Have Republicans distanced themselves from this part of the, you know, Reagan administration and the Reagan GOP - the Reagan part where he thinks that there are economic disparities that should be corrected by raising taxes on the wealthy?

DICKINSON: I think definitely. I mean, if you look, this is particularly apparent in the tax policies of the GOP's presidential candidates, where Michele Bachmann, Herman Cain, Rick Perry, Newt Gingrich and others want to eliminate capital gains taxes, and that would have the effect of kicking something like 23,000 millionaires off the tax rolls entirely, these are people who are just investors, they just make money from money. And under the tax policies proposed by many of the GOP candidates they would pay nothing in federal income taxes. And then further, they want to eliminate the estate tax, which would allow a hedge fund billionaire, say, to earn billions of dollars over his lifetime in capital gains income that is never taxed and then pass that income on to his heirs also tax-free. And so you end up with just a situation that's just very dangerous to the fiscal order and that's, you know, the Republican philosophy through Reagan was about preserving fiscal order, about making sure that the federal government had enough money to pay its bills.

GROSS: President Reagan raised taxes 11 times, but that was after he advocated an across-the-board tax cut. How far did he get with the cuts and why did he change his mind?

DICKINSON: Well, so the tax cut of 1981 was certainly intended to bring down marginal rates on the wealthy, and they were also supposed to have some very deep spending cuts along with these tax cuts. It was to help keep things in balance. And so, but as it turned out the tax cut itself grew, spending was not cut, and the defense budget ballooned enormously. And so, just a year after this tax cut at the bottom of a deep recession, the country was racking up deficits that were sort of ruinous. And the person who stepped up to the plate to reverse course there wasn't a Democrat, it was a Republican, Bob Dole, who stepped up and a created a tax package that effectively took back about a third of the original Reagan tax cut, and Reagan himself came around because he believed at some point you really do have to pay the bills.

GROSS: So it was a sense of you needed the money, you raised the tax revenue.

DICKINSON: Right. You know, traditionally when people start talking about Republicans and tax policy they start in the Reagan era. But I think that sort of elides some of the rough spots there and the readjustments that were going on, so that while Reagan was dedicated to cutting taxes for the rich, that is true, he was also mindful of not leaving the country with unsustainable debt. And so, although he did rack up enormous deficits, he was making adjustments for the rest of his two terms to raise taxes on things like gasoline. Reagan cut the deal to raise payroll taxes that created the Social Security surplus that was later raided to pay for the Bush tax cuts in 2001 and 2003.

So, but throughout Reagan and then in the George H. W. presidency, there was a commitment to fiscal balance and the sort of traditional Republican values, and that required raising revenue. There wasn't this allergy to revenue that the current GOP displays.

GROSS: Now you describe the Reagan era as the era that saw the birth of what is now known as "starve the beast." Would you describe what "starve the beast" means?

DICKINSON: "Starve the beast" was sort of this neoconservative idea that if the traditional mainline thinkers on tax policy and economics were right - that you create a revenue problem by cutting taxes so enormously and there isn't this supply-side miracle that happens - that that's okay because it creates pressure, it tends to bankrupt the country and that, they believed, was going to drive spending cuts later on. And so, that if you don't like the nature of what government does, you don't like that it funds a social safety net, you don't like Medicare, you don't like Social Security, it's actually a good strategy to leave the government in a perilous fiscal situation so that energies will be directed into cutting spending and paring back these programs.

GROSS: It was during the Reagan administration that Grover Norquist became the founding head of Americans for Tax Reform. And this is the group that gives the no-tax pledge that the majority of Republicans in the House and Senate have signed, in which they say they will never raise taxes. What was the original purpose of Americans for Tax Reform?

DICKINSON: So Reagan tapped Grover Norquist in 1985 when the tax reform package of 1986 was still in motion. And so this was to be an outside pressure group that helped get this bill across the finish line. And after they did that, Americans for Tax Reform stuck around to sort of prevent backsliding on the sort of core reforms, which included lower marginal rates and a cleaned-up tax code. And so that was the birth of the pledge, which said that we will keep taxes low and we won't - we will use any money saved from tax loophole closures to fund further tax cuts. And that had an element of sense when you had the tax code so clean as they did in 1986, there weren't that many loopholes to exploit and it was mainly a sort of a way of having a victory lap, of branding the Republican Party as having just pushed through this major accomplishment.

And so, Reagan in 1986 in the midterms there campaigned for candidates who signed the pledge. But in Grover's hands the anti-tax pledge has really taken on a life of its own. And he has taken this pledge, I believe it's now been signed by 98 percent of the House, a very large percentage - 98 percent of Republicans in the House, a very large percentage of Republicans in the Senate, but he's also taken it to the state legislatures. And so, I think there's something like 1,300 Republican state legislators who have signed the pledge.

And you have politicians who are essentially coming up through the farm system in the states before they reach Washington. And a very good example of that is Eric Cantor, who, as a member of the Virginia House of Delegates, signed this pledge. And, of course, he's today the House majority leader and sort of the ringleader of the Tea Party caucus who is just deeply inflexible about these questions.

GROSS: So what power does Grover Norquist have to enforce that no-tax pledge?

DICKINSON: Grover Norquist is sort of the permanent, a permanent fixture of the Republican establishment not seated in government. And so, he's developed this power not only by spreading the pledge around the country and sort of replicating his efforts, you know, in states across the country. But he's also got a Wednesday meeting where he brings together and sort of convenes the GOP establishment. And so you have think tanks and lobbyists, lawmakers meeting with activist groups of various stripes and they are coordinating policy and they are creating talking points.

And so that what happens is the tax issue is sort of the lowest common denominator for this group. It's the thing that sort of binds everyone together. And so if you tussle with Norquist, you're tussling with all the moving parts of this coalition that he has built and brought together through the years.

GROSS: So are you saying that if you don't sign the tax pledge or you break the tax pledge, that you would likely be ejected from this power circle that Grover Norquist is at the center of and those Wednesday meetings that he runs?

DICKINSON: Well, it's not just that, but if you break the pledge you're going to get primaried, and your primary opponent is going to have a maximum amount of funding and lots of activist support. It's essentially political suicide on a certain level if you do this, I think alone certainly, and even if you were to come up with a broad coalition to break this pledge en masse there would be serious repercussions and you're likely to lose your job as a legislator.

GROSS: Tim Dickinson will be back in the second half of the show. His article about how tax policy has contributed to economic inequality is in the current edition of Rolling Stone. I'm Terry Gross and this is FRESH AIR.

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GROSS: This is FRESH AIR. I'm Terry Gross, back with Tim Dickinson, a political correspondent for Rolling Stone. In the current edition, he writes about how tax policy over the past 14 years has contributed to economic inequality. And he writes about how tax cuts became a central part of the Republican brand. When we left off, we were talking about the pledge most Republicans in Congress have signed, promising to never raise taxes. The pledge was written by Grover Norquist, the head of Americans for Tax Reform.

The speaker of the House, John Boehner, recently said at a press conference that, you know, a supercommittee debt deal could include some tax revenues but there's a limit. So he was asked a question about Grover Norquist, to which he said, I'm not often asked about some random person in America. And I think people have subsequently tried to figure out, what did he mean by some random person in America when he was referring to Grover Norquist? How much is he trying to distance himself, if at all, from Norquist and the no-tax pledge? What's your reading on that?

DICKINSON: You know, as I read these tea leaves, I think that John Boehner has a bit of Tip O'Neill in him. I think he would like sort of in his heart of hearts to repeat the bargain that Reagan and O'Neill crafted in 1986 that allowed them to clean up the tax code and put the country on a better footing. But that's not - you know, Boehner is sort of a deal-cutter at his gut level. But that doesn't, he's been blocked in doing that by Grover Norquist and this pledge. And so I think what you're seeing in those comments is an attempt by a speaker of the House who is supposed to be incredibly powerful to marginalize this anti-tax activist who in fact has more sway over the GOP caucus then Boehner does. And so, I mean you see this in the presidential debates too. You had every single Republican candidate say that they would not agree to a deficit debt deal that included one part spending for every $10 of budget cuts. You know, this is just, I mean it would be a fantastic bargain in any rational universe but because of Norquist's tax pledge, which they've all signed, they can't agree to any kind of revenue increase.

GROSS: George H.W. Bush was elected in part because of his read my lips, no new taxes pledge. Had he signed onto the Grover Norquist no-tax pledge?

DICKINSON: Yes. And in fact it predated the sort of general election read my lips. It was, he was the sitting vice president. He had just lost the Iowa caucuses and it was moving into this must-win situation in New Hampshire and his chief rival was Bob Dole, who pointedly refused to sign Norquist's tax pledge. And in fact, Dole was the one who had led the Republican drive to increase taxes in 1982. So he was a traditional Republican who believed that taxes could go up and down. And so to differentiate himself from Dole, Bush signed onto this tax pledge and then quickly won the New Hampshire primaries and then, as you said, this became a centerpiece of his general election strategy against Michael Dukakis. It got sort of cowboyed up and they said read my lips, no new taxes.

GROSS: But he ended up, once in office, eventually raising taxes, or at least - what were the taxes that he raised?

DICKINSON: So once he was in office, it became clear that there was a real fiscal problem and that revenue needed to be part of the fix to it. And so George H.W. Bush put country before ideology and he brokered a tax package that increased taxes on the wealthiest and also increased taxes on luxury items, on jets and sedans and yachts. And it's interesting to note, this caused a schism in the GOP, where a Grover Norquist ally named Newt Gingrich led an intraparty revolt against the president over this tax package, saying that we won't go along, and as such President Bush actually had to reach out to more Democrats and include I think more taxes in the ultimate package that was passed because there was this Republican revolt against what he was doing.

GROSS: So after violating the no new taxes pledge - the read my lips pledge, President H.W. Bush lost his reelection bid. President Clinton becomes president. He first raises taxes on the wealthy and on capital gains, but then it's the so-called Republican Revolution and in '94 Republicans get the majority in both the House and the Senate. Newt Gingrich becomes an important leader of the so-called Republican Revolution. He, of course, is now running in the Republican presidential primary. So what are some of the tax changes that the Republican-led Congress pushed through during that period?

DICKINSON: So Gingrich, you know, described a tax cut as the crown jewel of Republican politics. And so he pursued cuts to both capital gains, to investment income, as well as to the inheritance tax, the estate tax. And he originally wanted to eliminate both of them. Democrats and President Clinton pushed back strongly on that idea. But he did succeed in lowering the capital gains rate from 28 percent to 20 percent and to doubling the exemption for the estate tax to a million dollars for wealthy people, that they wouldn't have to pay tax on the first million dollars of the estates that they leave behind.

GROSS: And in this period, does the no new taxes idea and the idea of tax cuts become more central to the philosophy of the Republican Party?

DICKINSON: Absolutely. So the warring factions that you saw, the Bob Dole faction versus the supply-siders, that war has been fought and won by the supply-siders by 1994. So that a majority of the House caucus has signed Grover Norquist's pledge and cutting taxes and only cutting taxes has become sort of core to the Republican brand by the time the Republican Revolution rolls in.

GROSS: And for people who don't remember what supply-side meant, you should give - brief definition.

DICKINSON: So supply-side economics is the theory that if you give tax cuts to the wealthiest, that they will use their money in productive ways and productive investments and the benefits will trickle down to the rest of us.

GROSS: So you know, the Republican Revolution tax cuts are passed in 1997. What impact did they have on the economy?

DICKINSON: Well, you go from an economy that's growing at a three percent clip and stocks are doing very well and incomes are rising, but quickly you sort of transition into a bubble economy and you have people being rewarded for taking gambles. Essentially the lowering of the capital gains tax is a reward to speculators and it's not just, you know, my opinion but Joseph Stiglitz, among others, points to this tax cut as a reason why the dotcom bubble grew inflated. And one thing I think you might be able to target, you know, Clinton for with some blame here in this equation is that they also eliminated capital gains taxes for most home real estate appreciation, so that when you sell your house you don't owe capital gains taxes. And a study by the Fed suggested that has created from 1997 to 2007, when the housing bubble burst, created a nearly 20 percent rise in housing transactions. So in a sense, in essence you are seeding two bubbles with this single tax bill.

GROSS: So you know, after the Clinton administration, George W. Bush becomes president. He begins his administration with a tax surplus, ends with a huge deficit. Throughout his administration there's an emphasis on tax cuts. Did the philosophy behind the tax cuts shift from the time of surplus to the time of deficits?

DICKINSON: Well, so George Bush took office with these just unbelievable projections of $5 trillion in surplus. By this year, by today, we were supposed to be sitting on a five trillion, $5.6 trillion surplus. And so there was some rationale for a tax cut, but even as the Bush administration was taking office, the economy was beginning to falter. Even before he was inaugurated, Dick Cheney said we may well be on the edge of a recession here. And so these competing forecasts, one of just endless sunshine and surplus and the other of gloom and contraction, sort of should've sent and for a few members of the Bush administration did sort of raise red flags and people started talking cautiously about, well, do we want to scale back this tax package? But the president and the vice president weren't hearing any of that, and in fact they just shifted the rationale so that it wasn't that, you know, America deserved this tax cut because it could afford it, but that America needed this tax cut because the economy was going to stumble without it, that we couldn't afford not to cut taxes because that would provide a stimulus to prevent a recession.

GROSS: Cheney played a key role not only in being the lead person in the Bush administration to help push through the tax cuts, but he also cast a very decisive vote.

DICKINSON: Right. And the 2003 tax cut, and I think it's actually worth stepping back here to understand what the economic situation was, so that by 2003, whatever forecasts of surplus are gone. You know, we're actually running deficits and we're at war with Afghanistan, we're contemplating a new war with Iraq, which is going to be very expensive, and in any sort of traditional Republican administration or Democratic administration, there's been a determination to not leave the war debt to a new generation to come - that you pay for wars as you go. And so this, you know, this was sort of a Bob Dole 1982 moment. In traditional Republican strategy of governance, this is the moment to say we've overshot the mark here, this is - we've created deficits that are problematic, we're going to be fighting these long and costly wars, so we should actually think about a tax increase here.

But what Cheney does is he engineers a tax cut that runs towards the problem. He wants to accelerate the tax cuts that were passed in 2001. He wants to give the wealthiest their money sooner. And he also wants to implement new cuts to capital gains and dividends incomes, to drop both of those rates just 15 percent.

GROSS: So was the vote strictly on party lines like it so often is today?

DICKINSON: The Senate split 50-50 and it wasn't entirely on party lines. An unreliable Democrat named Ben Nelson from Nebraska crossed the aisle to cast the sort of key 50th vote to lead the Senate into deadlock and then Dick Cheney using his constitutional office cast the deciding 51st vote in favor of the tax cut.

GROSS: So how would you compare the emphasis on tax cutting during the George W. Bush administration to the emphasis among Republicans today?

DICKINSON: During the Bush administration, there was an argument phrased by Dick Cheney that deficits don't matter, that you can run up these tax cuts on essentially the national credit card, that you can pay for these tax favors to the wealthiest by borrowing money from China if you need to. But today there's this argument now that Obama is president that deficits do matter - in fact, they're the most important thing of all. But there's a sort of strange caveat to this. You can still push through new tax cuts for the wealthy even if those are paid for with deficit spending. And so it's a very puzzling line of argument that doesn't get challenged very often. But you look at the lame duck deal, the deal in December of last year that extended the Bush tax cuts for the wealthiest - and this was a deficit finance package that had other components to it - but the net effect was to raise the national debt by a greater amount than the stimulus package that Republicans fought so bitterly against as being wasteful deficit spending.

GROSS: If you're just joining us, my guest is Tim Dickinson. He's national political correspondent for Rolling Stone and his article in the current edition is about Republican tax policy and its impact on Americans. Let's take a short break here and then we'll talk some more. This FRESH AIR.

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GROSS: If you're just joining us, my guest is Tim Dickinson. He's the national political correspondent for Rolling Stone and his article in the current edition is about Republican tax strategy and what the effect has been on Americans of tax cuts over the years.

You write that one of the reasons Republicans don't like Obamacare is that the top 400 taxpayers would be contributing an average of $11 million each and that, you know, the Obama health care plan is financed in part by increasing Medicare taxes on the wealthy, including new taxes on investment income. So can you elaborate on the Republican concerns about the funding of Obama's health care reform plan?

DICKINSON: This is not something that received a great deal of attention when the Obamacare was put through. But the primary funding mechanism is these new Medicare taxes. And for the first time there's going to be a 3.8 percent tax on investment income for the wealthiest. And so this has the effect of raising capital gains taxes starting in 2014 from 15 percent to 18.8 percent, I guess. And then if the Bush tax cuts are allowed to expire, you'll have an effective tax rate of above 23 percent on capital gains, which will be a higher rate on capital gains than at any time since 1997 when these - when sort of the initial campaign of cutting taxes on investment income began. And so this is obviously a matter of great consternation to the nation's investor class, and the Republicans are quite responsive to those concerns.

GROSS: When you look around at America today, what strikes you as some of the biggest tax disparities?

DICKINSON: So I think the most glaring disparity is in what's called the carried interest loophole, where managers of hedge funds and private equity firms receive their management fee, essentially their salary, for managing other people's money. And they're paid huge sums, and this comes out to be, many times, billions of dollars.

But when it comes time to pay taxes on what is effectively a salary, a wage income, they are instead taxed at the capital gains rate. So instead of paying 35 percent on their multi-billion-dollar salary, they're paying only 15 percent, and then, many times, only years in the future, when they cash out.

GROSS: And what's the logic behind that? Is that because the hedge funds' profits come from investments, therefore, all the money that goes to anybody who's basic salaried at the hedge fund has money that's from investments and therefore it should be taxed at an investment rate and not at a salary rate?

DICKINSON: It gets into a sort of complicated tax structure of partnerships where the partners in a firm are entitled to have their salary effectively taxed as the income that was created. So the firm is creating investment wealth and so it's taxed as investment wealth rather than a salary. There's not a lot of logic to it. It doesn't make much sense. And there are other partnerships that benefit but nobody else is benefiting to the tune of $20 billion a year as an industry.

GROSS: So I want to get back to a statistic that's in your piece, which is that the average income for the bottom 90 percent of taxpayers has remained basically flat over the past 15 years but those in the top 0.01 percent have seen their incomes more than double to $36 million a year. So we're not even talking the top one percent, we're talking .01 percent there. If they were taxed, say, at a higher level, say the 1996 level, would that make a dent in our budget deficit?

DICKINSON: It would. I mean, there's a - I don't think that would be sufficient, but that would make - I mean, we're talking about people who are making hundreds of millions of dollars and billions of dollars a year. So this is a non - certainly a non-trivial amount of money that we're talking about. But I think there's sort of - embedded in your question is sort of a broader question about what is our capacity to pay down our debt and to pay our bills?

And there's this myth going around that America is broke, that's we're somehow like Greece, that we just can't meet the commitments that we've made. And that's just patently false. The tax rate, as a percentage of the economy, is about 20 percent below the historical average right now. It's as low as it's been since the eve of the Korean War.

And if we instituted a tax policy that was more like our neighbors to the north in Canada, we would have plenty of money to meet all of our commitments and probably start to pay down some of our debt. And so this idea - we have a debate about - that we need to have about, you know, what spending we want and how we're going to pay for it, but this idea that America is somehow broke and just doesn't have the money is patently false.

GROSS: Anything you'd like to add that I didn't ask you about?

DICKINSON: I think I'd just like to make the point that we tend to think of income inequality in this country as though it were a force of nature that people really don't have any control over. And certainly there are some underlying structural trends - the decline of unions, the increase of globalization and global trade - that are driving inequality to a certain degree.

But on top of that, and pushed by the Republican party, you have a tax policy that is favoring people who are getting more and more wealthy as a result of these structural trends and rewarding them with tax cuts that are allowing them to get richer still. And that is a new story in America and it's not the one that we like to tell ourselves.

GROSS: Well, Tim Dickinson, I want to thank you very much for talking with us.

DICKINSON: It's been my pleasure, Terry.

GROSS: Tim Dickinson is a political correspondent for Rolling Stone. His article about how tax policy has contributed to economic inequality is in the current edition of Rolling Stone. Coming up, Maureen Corrigan reviews the historical novel "The Pilgrim." This is FRESH AIR.